Lack of liquidity in the markets, and inflation

When I was at work today, an employee who likes to follow the markets talked about the the liquidity issues that a lot of the banks are facing.  They have loaned out a ton of money that people are having trouble repaying.  Here is a quote.

“Extraordinary optimism sustained an orgy of speculation.  Books were written to prove that economic crisis was a phase which expanding business organization and science had at last mastered.  ‘We are apparently finished and done with economic cycles as we have known them,’ said the President of the New York Stock Exchange.”

When was this from?  September 1929.  The whole passage was pulled from Churchill’s The Gathering storm (1948).  I believe that the modern day comparison is “irrational exuberance”.   We have spent money that we do not have, and the whole country is mortgaged up to the hilt.  The US still wants to be big and bad, but economics are what provide worldwide power. 

Karl von Clausewitz said, “To secure peace is to prepare for war.”  Instead of preparing for future wars that we could win decisively, we have slowly whittled away our strength in piecemeal wars.  Foreign governments are emboldened as they see us stretched to the breaking point.  The number of people employed by the government leviathon are people that can’t be employed in contructive industry or in the military.  Those killed and maimed in war represent permanent losses to the country economically (not to mention their families met someone in a hospital or in a body bag.)  Those people permanently injured in action also require permanent benefits, including medical care with its escalating costs. 

We could afford these type of expenses if we weren’t hemoraging money in every other sector.  If in San Francisco the cost of illegal immigrants is not high enough, some people can fix that.   They wish to raise taxes to pay for the green cards of the illegal aliens.  It’s natural that we want to be the benefactor of poor nations, but we do not have the resources to take care of the problems of the world.  After we get our own house in order, from the federal government level down to the individual household, we can and should individually use our resources to help others.  Until then, we are like people buying gifts for everyone with our credit card, while planning to go bankrupt.  The polititians are afraid to tell Americans that the way out might require a bit of hard work and sacrifice.  They’d rather cheat their way out, through the magic of inflation.

The central banks of the world pumped over $300 billion into the world markets during 48 hours on Thursday and Friday (cough cough inflation).  What happens to the global econonmy when fiat money is pumped into the system?  It steadies temporarily, but we are delusional if we think that this is a permament fix.  This is a bandaid over a wound that is festering.  It has been festering for years, and it will take a major surgery to clean it up.  I’m not looking forward to it. 


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